Update: Upcoming Outsourcing Issues. April 27, 2015

1) National: Grassroots Leadership issues a report detailing “the increasing seizure of the immigrant detention industry by for-profit prison corporations and their extensive lobbying of Congress to protect their bottom line.” Bethany Carson explains that “the immigrant detention quota is taxpayer-financed insurance for private prison corporations that the government will maintain their bottom line at all costs. Now, we are seeing those same corporations invest millions in the Congressional committee that created that insurance policy for them. Congress’ vast immigrant detention system is tearing apart families and communities, and creating an enormous profit from human misery.”

The report recommends eliminating the immigration detention quota from the 2016 appropriations request; reduced reliance on for-profit contractions by ICE; ending contracts at facilities with a record of abuse and penalization of poorly performing contractors; and the expansion of “non-punitive, community supported alternative to detention (ATD) programs.” [Report, Payoff, by Bethany Carson and Eleana Diaz]. A petition to have Congress abolish immigration detention quotas, hosted by the American Friends Service Committee, is currently circulating.

2) National: The GEO Group and Corrections Corporation of America will make investor presentations at the Macquarie Capital (USA) “Extreme Services Conference” in New York on May 11, 2015. The GEO Group will hold its annual shareholder meeting this Wednesday in Boca Raton at the Boca Raton Resort & Club. Corrections Corporation of America will hold its annual shareholder meeting on May 14 at its headquarters in Nashville. The company will release its first quarter 2015 financial results after market close on May 5, and will hold its earnings call on May 7 at 11 eastern time.

3) National/New York: The Rockland Water Coalition has received the Environmental Protection Agency’s Environmental Champion Award for its work in blocking a controversial effort by United Water to pipe Hudson River water to Rockland County homes and businesses. “The New York State Public Service Commission halted United Water’s desalination plans after receiving more than 1,500 comments from the public. Community activists, led by the coalition, demonstrated to the PSC that the conclusions about Rockland County’s water were based on faulty information and inflated water-demand projections. (…) Armed with this information, the Coalition demonstrated to the PSC that the county’s water needs were not as dire as United Water had portrayed them to be and that the energy-intensive cost of desalination would nearly double residential and commercial water rates, while more demand-side water conservation opportunities had not been fully considered by the utility.”

4) National: KKR Inc.’s first quarter profits rose 29%. Beginning January 1 of this year, the private equity corporation teamed up with United Water on a 50-year concession to manage, operate and invest in Middletown, Pennsylvania’s water and wastewater system, and is also involved in the partial privatization of Bayonne, New Jersey’s water system. [Sub required]. The private equity firm has been touring the country pursuing water privatization deals. [Public Works Financing, March 2015; sub required; also, see below].

5) National: Despite the lowest borrowing costs in 50 years, cities and states are still not investing in their crumbling public infrastructure. “While municipalities have sold a record $130 billion of long-term, fixed-rate bonds this year, an unprecedented 70 percent of the deals have gone to refinance higher-cost debt, rather than fund capital expenditures, according to Bloomberg and Bank of America Merrill Lynch data.”

6) National: A Justice Department audit of a Bureau of Prisons contract with Reeves County, Texas, finds multiple oversight and questionable accounting practices. Reeves County subcontracted with Correct Care Solutions (CCS) and GEO Group to run the Reeves County Detention Center I/II in Pecos. The facility houses 2400 low-security, non-U.S. adult men, and was the site of a riot in January 2009. “We found that Reeves County and CCS failed to comply with provisions of the Service Contract Act of 1965 (Service Contract Act). As a result, we identified almost $3 million that we either questioned as unallowable or unsupported, or believe should be put to better use. (…) Also, we identified and CCS acknowledged fringe benefit underpayments covering 12 current and former CCS employees totaling $22,628.”

7) National: Senior federal workers who saved taxpayers $32 billion are honored.

8) National: Atlanta Journal Constitution education writer Maureen Downey continues the debate over public vs. private education, publishing a reply to a Cato Institute paper by two pro-public education academic researchers. The debate compares privatization efforts in the U.S. and Chile. “Education is a public necessity that calls for collaboration; the sharing of resources, information and practices; and justice. It should be the job of a healthy state aiming for the common good, not a game for businesses with a focus on profits, losses, and hedging financial bets.”

9) Arizona:  The Central Yavapai Metropolitan Planning Organization proposes studying the feasibility of a “public private partnership” to deal with congestion problems on I-17. “Possibilities include paying back a private investment through either a toll system, Bridges said, or through a long-term contract involving annual payments by the state.”

10) California: A court ruling affects public and private water companies differently. “A California Court of Appeals ruling–that tiered water rates must correspond to the cost of service–affects public water agencies. But, it does not affect private companies.” The right wing Howard Jarvis Taxpayers Association was one of the plaintiffs in the suit against the public water companies. Useful chart: the price of water in 2015 for households in 30 major U.S. cities.

11) California/National: Are private bondholders gaining too much influence over educational decision-making at nonprofit colleges? Inside Higher Ed‘s Ry Rivard investigates. “In largely unnoticed side deals with investors, several colleges have promised they will raise prices on students, force students to live in dorms and even increase class sizes as they lay off faculty. These are not for-profit colleges. Instead, they are nonprofits running into trouble with their debts. Unable to fulfill promises made when the colleges borrowed money years earlier, these colleges have struck deals to head off severe penalties, including foreclosures of campus property.”

12) Colorado: The Denver Post lashes out at critics of toll lanes. Last Tuesday at a public meeting citizens denounced the creation of a toll lane on U.S. 36, saying they “resented the fact the highway will include a ‘Lexus Lane’ that only a well-heeled minority will be able to use. (…) ‘Why didn’t we add another free lane?’ Westminster’s Mark Rawlins asked. ‘Someone soon will say, “Let’s toll the whole road.” Well, a lot of people don’t have the money to ride on something like that.'”

13) Delaware: Controversy breaks out over the selection of New Castle County’s money manager. “The back and forth has been raging since the transfer of $92 million to a new money manager more than a year ago, without competitive bid, raised the ire of County Council. The fracas reached new heights [last] Wednesday when the Executive Office released the audit along with a scathing press release aimed at the credibility of the auditor a day before the committee was set to approve it.”

14) Florida: The Columbia Journalism Review criticizes the Miami Herald for ignoring opponents of the proposed All Aboard Florida private rail line. “What Herald readers are barely seeing: There is intense resistance to the new passenger trains in counties to the north, with both activists and public officials trying to stall or kill the project. AAF is facing community opposition from northern Palm Beach County all the way through the four counties to the north—places that will see more train traffic, but won’t get more service.” Last week, a second Florida county, Martin County, announced plans to sue over the project. On March 31, Indian River County sued the federal government for approving Private Activity Bonds for AAF before an environmental assessment was completed. [Sub required]

15) Florida: An intense battle is taking place over which company will win the contract to administer tolls on Florida’s 80,000 miles of roads. “The Florida Department of Transportation is currently conducting a procurement process designed to evaluate the claims of the competing vendors vying to do just that. But inconsistencies in the rankings produced by this process are raising questions about whether and how a legitimate outcome can be reached by it. According to public records a panel of experts—called the Technical Committee—convened by FDOT last year gave their most favorable scores to Accenture. (…) But afterwards, additional rankings from a smaller pool of four assessors gave the nod to document management giant Xerox, countermanding the committee’s earlier decision on account of an allegedly ‘lower risk’ to liability for the state and its taxpayers associated with them.”

16) Illinois: The East Aurora School Board has delayed a decision on a contract with Sodexo that would increase the cost of school meals by 3%. This will allow new school board members who take office on May 4 to review the contract. “Last year, the district opted to rebid its contract and was able to save $738,000 over the prior school year’s contract. But the district had to rebid the contract twice, after the state found problems with the way Sodexo filled out its labor cost form in its bid documents. The company ultimately won the contract both times.”

17) Illinois/Indiana: Illinois Gov. Rauner’s announcement last week that the DOT will hold a series of public meetings across the state to discuss infrastructure priorities could provide a final answer about whether the controversial Illiana Expressway will proceed. “Before being appointed IDOT head, Blankenhorn was executive director at the Chicago Metropolitan Agency for Planning, which issued a highly critical report on the Illiana Expressway in the summer of 2013.”

18) Indiana: Despite intensive efforts by industry lobbyists and Mayor Ballard to persuade enough councilors to call up the Indianapolis Justice Center project to the full City-County Council for a vote after it had been rejected in committee, they fail. Amos Brown III provides some of the interesting backstory to the behind the scenes battle. The project is now dead unless it is revived in some new form. John Guy, writing in the Indianapolis Business Journal, says the project should be put through as is, making the dubious argument that “tax exempt bond funding is likely to be more expensive.” [Sub required]. A report commissioned by the council found otherwise. But Donna Sink, vice president of the American Institute of Architects in Indianapolis, says the council should start over: “the American Institute of Architects Indianapolis is not opposed to a new justice center; in fact, we agree that it’s needed. We’re concerned about two issues: That proper public input was not sufficient, and there’s not a long-term urban plan or vision for either the justice center or the GM site. Forward-thinking urban planning means getting input from many voices. It means finding the right location, and it means considering the larger-scale impact of every project. For example, how will moving the jail out of Downtown impact the vibrancy of the urban core?”

19) Louisiana: Investors pull out of a proposed $115 million public bond issue by LSU over possible drastic funding cuts to the university in the state budget. LSU said on Friday that it “postponed” the bond sale, but investors were disturbed that a day after they priced the bonds, the university announced it was working on an insolvency, i.e. bankruptcy, plan. “‘Higher education in Louisiana has been socked with back-to-back years of reduced funding,’ said [state] Treasurer Kennedy. ‘Investors are sounding the alarm bell. We need to listen.’ Public colleges are threatened with deep cuts up to 80 percent of their state financing in the budget year that begins July 1.” Gov. Jindal has threatened to veto revenue raising measures to fix the $1.6 billion deficit. The Centers for Medicare and Medicaid Services has again rejected the use of $189 million in advance lease payments for financing LSU’s hospital privatization deals.

20) Maryland: Gov. Larry Hogan says he wants to see significant cuts in the cost of the proposed Purple Line light rail “public private partnership” before deciding whether he will go ahead with it. “I don’t have a number, but [the current cost] is completely out of whack,” Hogan said. He will decide by mid-May if he wants to proceed, and if he does bidders will have until August 19 to file proposals. [Sub required]. Proponents of the project issued an updated report saying it would increase the area’s annual household income and generate $635 million in new annual tax revenue.

21) Michigan: Serious questions have been raised about the Department of Transportation’s oversight of contractors. “Many lawmakers are fuming over those questions as voters are asked May 5 to take on $1.2 billion a year in new roads taxes and expand the troubled warranty program to local roads. (…) Many of MDOT’s legislative overseers are increasingly skeptical of officials saying they’re “still learning” the best way to manage warranties, 18 years after the program launched and after being warned at least three times by state auditors that the program was ineffective. Federal reviews also have found shortcomings, such as a 2009 criticism that MDOT allowed contractors to inspect some of their own work.”

22) North Dakota: The Griggs County courthouse complex project remains mired in controversy over who is responsible for paying for what. The parties may end up in court. “Construction Engineers, based in Grand Forks, and subcontractors walked off the job last May over payment delays and contract language issues.” The case illustrates the importance of careful project agreement drafting, vetting and oversight, whether public or private.

23) International: Prisoners make the minimum wage in Poland. Rebecca McCray reports this “sets the country apart from places like the U.S. where the maximum hourly wage a federal inmate can hope to make is $1.15. While not all prisoners have access to work while incarcerated, those who do are able to take jobs through partnerships with local businesses that offer work inside the prisons. In some communities, prisoners are able to work in educational facilities, health centers, social assistance foundations, and other local charity organizations.”

24) International/National: Global infrastructure fundraising by unlisted funds in the first quarter of 2015 was slow, “with just four funds closing on a combined $5.3bn. This represents the fourth consecutive quarter in which the total capital raised by funds reaching a final close has declined, suggesting an increasingly tough fundraising landscape. However, those managers which are able to achieve a final close are often attracting large amounts of capital.” IFM Global Infrastructure’s $5.7 billion deal to purchase the Indiana Toll Road from Macquarie was the most significant U.S. deal. [Preqin Quarterly Update Q1 2015, sub required]. The U.S.-based Kohlberg Kravis Roberts (KKR) infrastructure fund has hit the $2.5 billion mark. [Sub required]

25) International: A third unsolicited highway “public private partnership” has been approved in Colombia, the $1.9 billion Chirajara-Villavicencio project. Colombia’s transport ministry has also speeded up port “public private partnership” concessions. [Sub required]

26) Revolving Door News: Former Detroit Emergency Manager Kevyn Orr revolves back into his law firm, Jones Day, as head of its Washington, DC office. “Jones Day was the city’s lead bankruptcy firm, receiving $57.9 million in fees for its work during the restructuring.” Orr is currently a consultant to the emergency manager of Atlantic City, New Jersey, appointed by Gov. Christie.

27) Think Tanks: The National Federation of Municipal Analysts has produced a white paper on the disclosure of potential conflicts of interest in municipal finance transactions.

Legislative Issues:

1) National: The National Association of Water Companies, the industry trade group for privatized water, hires the lobbying group Troutman Sanders for $20,000 to lobby for HR 499, the Sustainable Water Infrastructure Investment Act, on Private Activity Bonds. Troutman’s Brent Fewell will lobby the Senate and EPA for NAWC. Fewell has also lobbied for United Water. NAWC has also hired Ogilvy Government Relations to push to eliminate volume caps on Private Activity Bonds for water infrastructure. But Food & Water Watch has pointed out that “private financing for infrastructure investment is more expensive than public investment. Relying on private capital raises the cost of infrastructure investment, without bringing in any new capital. Moreover, an increase in tax-exempt bonds in the investment market requires other public bond issuers to raise interest rates in order to lure investors, raising the cost of fundraising for other local government priorities. Private activity bonds ‘crowd out’ investment in other public sectors.”

2) Alabama: Two weeks after it was rejected, a proposal to privatize Alabama’s state-owned liquor stores is reintroduced. “ABC officials have said privatization will hurt General Fund revenues, lead to more alcohol consumption, especially among minors, and leave 600 ABC employees jobless.”

3) Florida: Controversy builds over proposed legislation to give the Florida Development Finance Corporation the ability to issue bonds statewide without local government approval. “Over time, FDFC has also served as the conduit issuer for nonprofit health care facilities and charter schools.” [Sub required; HB 7067]

4) Florida: A “public private partnerships” bill is now in the House Appropriations Committee. The bill “deletes Public-Private Partnership Guidelines Task Force; revises provisions regarding responsible public entities & unsolicited proposals submitted for qualified projects; revises provisions regarding comprehensive agreements entered into between responsible public entities & private entities; deletes provisions relating to notice to affected local jurisdictions; revises provisions regarding responsible public entity compliance with specific financial obligations; provides duties of DMS.” [CS/HB 63]

5) Illinois: Business columnist Joe Cahill questions Gov. Rauner’s logic in backing legislation to partially privatize economic development in the state. “There’s plenty of evidence that private organizations can run into trouble. Transparency has been an issue, as some private groups have balked at disclosures required of public agencies. Conflicts of interest can arise when private businesspeople are doling out taxpayers’ cash. The private economic development group launched by Wisconsin Gov. (and Rauner role model) Scott Walker has been criticized for conflicts, poor financial controls and lack of accountability. (…) Why not just revitalize the DCEO? As governor, Rauner has the power to clean house, recruit top talent, raise performance standards and instill a new sense of mission. Kind of like the corporate turnarounds he engineered in private equity.” The bill would not require that a labor representative sit on the board of the new organization, and no member would require Senate confirmation.

6) Maine: State lawmakers struggle over how to administer county jails. “Several lawmakers on the panel voiced frustration the proposed changes could wipe out seven years of work that led to more collaboration and cost-saving among county jails. Others said Long’s bill eventually would put the full expense of jails back on county governments and property taxes.”

7) Massachusetts: Democrats are divided over the possible partial privatization of state mental health services. The move would require weakening the state’s Pacheco Law, which provides strict conditions and procedural guidelines on when and how public services can be outsourced. “Pacheco, a Taunton Democrat, prefers to call it the Taxpayer Protection Act, and said the law is a safeguard against contracts that diminish service or increase government spending. ‘The law works,’ Pacheco told the News Service. He said, ‘You want to make sure there is a process.’ (…) Ellen Andrews, a health policy consultant to The Council of State Governments Eastern Region, said evaluations of a planned privatization are usually ad hoc and ‘heavily lobbied,’ often occurring at the end of a budget cycle.”

8) Missouri: A bill has been proposed by a state senator to put tolls on Interstate 70, one of the busiest roads in the state, and give a 30 to 40 year lease to a private company. “If Dr. Schaaf’s bill passes, a three-member commission would work together to solicit bids and agree to terms for a lease of I-70. Any agreement then would require approval from the Missouri Highway Commission.”

9) Ohio: A jail privatization provision has been stricken from the Ohio House budget. “The measure expanded counties’ existing ability to privatize facilities housing those charged with misdemeanors to those also charged with felonies. County sheriffs raised concerns that the move could add confusion to duties held by law enforcement and risk public safety, while not saving money.”

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